Monday, July 16, 2007

Physicists Should Stick To Physics

I was visiting a physics blog (well the Duke case has lost my interest so I have to do something) and came across this astonishing discussion of economics. They are discussing how stupid the Laffer curve is as presented in a recent Wall Street Journal article. It seems like our vaunted physicists believe a linear curve better fits the data than the third or fourth order curve the Wall Street Journal presented. He shows the two curves with some comments and then says:

No, I am not being unfair. I did not draw the “Laffer Curve” on top of those data in order to embarrass the WSJ or AEI. They did it themselves; the second graph is how the plot was actually published by the Journal, while the first one was Mark Thoma’s subsequent reality-based-community version of the plot. As Kevin Drum says, it’s “like those people who find an outline of the Virgin Mary in a potato chip.”

Among other features, we note with amusement that the plotted curve implies that tax revenues hit zero at a corporate tax rate of about 33%, and become dramatically negative thereafter. As of this writing, it is unclear what advanced statistical software package was used to fit the Laffer Curve to the data; the smart money seems to be on MS Paint.
So I have a question or twenty:

Can you explain why tax revenues in America have been rising at double digit rates despite the tax cuts of 2003? They started going up as soon as the reductions were passed and have been rising ever since.

It seems that the experiment is being done and it proves that the Laffer curve guys may be right.

As a good aerospace engineer I trust the data over theory every time.

There is a very good reason that, for the most part, money decisions are made by engineers and rarely by scientists. Engineers are expected to make things that work.

I would like to see more engineers in Congress. More scientists would be a disaster due to insufficient contact with the real world.

Let me note that the WSJ graph (mistaken in derivation or not) most closely fits the evidence. Lowering tax rates raises government revenue. At least in America.

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B said: If the people in country X want more (public transport? social security? health insurance? unemployment insurance?) to be shared responsibility, the thing to do so is to use taxes.

Let me rephrase that:

If the people in country X want to steal other people's money the responsible way to do it is to use taxes.

I agree.

Hey physics guys. The USSR failed. Europe can't support its welfare state. America will be severely strained by its welfare state. And you guys want more of the same? With Big Physics on the government dole I understand your orientation. However, it may not be popular with the run of mill citizen who dislikes having his pocket picked.

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I know how you can get back in the good graces of the average citizen. Give them the physics to build a low cost p-B11 (proton - Boron 11) burning fusion reactor which can deliver power to the grid and your esteem in the eyes of the average citizen will go way up. They might be more willing to open their wallets.

Get cracking.

BTW I'm working on an open source test reactor along the Bussard Polywell lines. I'm short a plasma physicist. Any one care to join in?

IEC Fusion Technology blog

If you are not familiar with Dr. Bussard's work here is a good place to start:

Easy Low Cost No Radiation Fusion. Actually it is not no radiation. A 100 MW reactor will produce about 1 Kw of neutrons. Not too hard to shield. Not significant for making plutonium. So I learned a bit since I wrote that.

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You really want to do something for the poor of the world? Forget Socialism. Reduce the cost of energy. That is actually within your means.

Better yet get us off the oil standard.

Yeah. The LHC (Large - they are not kidding - Hadron Collider) is sexy. And the superconducting magnets are thrilling. Well they thrill me, but I've been known to have some strange fetishes. Evidently that is one of them.

Seriously.

You guys need to focus for a few years on providing benefits to society. Don't you know there is a war on? It could be ended with physics and I don't mean bigger bombs.

There are a number of IEC fusion devices out there. From my studies the Bussard Reactor looks to be the most likely to succeed. However, if you don't like that there is a commercial venture Tri Alpha Energy. Or the guys at the University Wisconsin. Or Champaign Urbana.

Here is a look at some of the small fusion projects [pdf] currently going on in America.

Give what you can. An hour a week would be a start.

Cross Posted at Classical Values

5 comments:

LarryD said...

The revenue obtained from a tax rate of 0% is 0.

The revenue from a tax rate of 100% is very near 0, too, as anyone working will do their best to avoid the confiscatory taxes. And if you can't avoid the taxes, there is no reason to work.

So, unless they want to argue that the curve of revenue vs tax rate is discontinuous, there must exist a maximum point between 0% and 100%. Increasing the rate above that point results in less revenue, QED.

I understand that the Chinese sage known to us as Confucius, had observed this same principal well over a thousand years ago.

Anonymous said...

what the data suggests to me is that most countries get between 2 and 4 % of gdp, and that that's true spanning a wide range of tax rates.

I suspect the really decisive factor is the extent of internationalization of the corporate sector in the given country, so that if you want to increase tax revenues you have to regulate more rather than tax more. Obviously that has trade offs of its own, as such regulation could hurt GDP itself, so that getting more of it in taxes accomplishes nothing.

Wonder why Japan is not shown.

Reid said...

M. Simon says "I would like to see more engineers in Congress."

We have had 2 engineer Presidents, Hoover and Carter, and they performed terribly.

I'd like to see more economists in Congress. The problem with engineers is that they tend to be micromanaging control freaks. Economists tend to avoid the micromanaging and allow the people to freely operate.

M. Simon said...

Carter never passed his nuke quals.

I wouldn't rate him as an engineer at all. BTW I passed my nuke quals. I was the best graduate they had for about 2 years. Or so they told me.

Your point is well taken though. More economists. I recall we had an economist/actor for President who did OK.

However, given the choice between scientists (as a class) and engineers (as a class) it is engineers every time.

linearthinker said...

Engineers aren't attracted to political careers, by and large, because the good ones have difficulty lying.